Calculate Your Commercial Mortgage Costs

Lenders calculate commercial mortgage repayments using the loan amount, interest rate and term. On a capital repayment basis, each monthly payment covers interest plus a portion of the principal. On interest-only, you pay just the interest and repay the full loan at the end. The lender also applies an affordability test, either ICR for investment properties or DSCR for owner-occupied premises, to determine the maximum loan they will offer. Rates, fees and LTV limits all affect the final calculation.

Most commercial mortgage lenders require a minimum deposit of 25% of the property value, giving a 75% LTV. For the most competitive rates, 30-40% is common. Some specialist lenders accept 20% for strong applications, but the interest rate will typically be 0.5-1% higher. Unlike residential mortgages, there are no 90% or 95% LTV commercial products available on the mainstream market. The higher deposit requirement reflects the greater risk lenders associate with commercial property.

Commercial mortgage interest rates in mid-2026 range from around 5.25% for low-risk properties at low LTV to 9% or more for specialist assets or higher-risk borrowers. Standard high-street commercial property at 65-70% LTV typically attracts rates between 5.75% and 7.5%. Rates depend on property type, LTV, borrower credit profile and whether you choose fixed or variable. Fixed rates offer payment certainty but usually sit 0.25-0.75% above equivalent variable rates.

Yes, many commercial lenders offer interest-only mortgages. You pay only the monthly interest, keeping payments lower, but the full loan balance remains outstanding at the end of the term. On a £500,000 loan at 6.5%, interest-only costs roughly £2,708 per month compared to £3,726 on capital repayment over 20 years. You will need a clear exit strategy, such as selling the property, refinancing or using accumulated reserves, and most lenders cap interest-only LTV at 60-65%.

Your maximum borrowing depends on the property's rental income or your business profits, the LTV ratio and the lender's stress test. For investment property, lenders require the rent to cover 125-150% of the mortgage interest (ICR). For owner-occupied premises, your EBITDA must cover 125% of total debt payments (DSCR). At 70% LTV with a 6.5% rate and 130% ICR, a property generating £36,000 annual rent supports a loan of roughly £395,000.

The interest cover ratio measures whether a property's rental income is sufficient to cover the mortgage interest with a safety margin. You calculate it by dividing the annual gross rental income by the annual mortgage interest cost. An ICR of 130% means the rent exceeds interest by 30%. Lenders typically require 125-150% ICR, and they stress test at a rate 1-2% above the actual mortgage rate to ensure the property can still service the debt if rates rise.

The debt service coverage ratio measures whether a business generates enough profit to cover all its debt payments, including both interest and capital repayments. You calculate DSCR by dividing net operating income (usually EBITDA) by total annual debt service. A DSCR of 1.25 means the business earns 25% more than it needs to service the debt. Lenders use DSCR for owner-occupied commercial mortgages where the borrower's trading profits, not rental income, must support the loan.

Lenders stress test commercial mortgages by assessing affordability at a rate higher than the one you actually pay. Typically they add 1-2 percentage points to the current rate. If your deal is 6.5%, the lender might test at 8.0% or 8.5%. This ensures you can still make payments if rates rise. Stress testing directly reduces the maximum amount you can borrow, because the higher notional rate requires more income to achieve the required ICR or DSCR threshold.